Saving for retirement is a challenge, and if you're falling behind, you're not alone. The median amount Americans have stashed in their retirement accounts is just $35,345, according to Vanguard's 2022 "How America Saves" report.
While there's no quick fix for saving a lot of money in a short amount of time, there's one retirement savings perk that can double your savings with next-to-no effort on your part: Take advantage of matching contributions.
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Save more while barely lifting a finger
If you're fortunate enough to have access to a 401(k), you may also be entitled to matching contributions from your employer. In this situation, your company will match your 401(k) contributions up to a certain limit.
Not all employers offer this perk, but if your 401(k) plan does, taking full advantage of it could instantly double your savings. Over time, the employer match alone could amount to hundreds of thousands of dollars.
For example, the median salary among U.S. workers is around $55,000 per year, and the average company match is 3.5% of an employee's wages, according to the Bureau of Labor Statistics. That amounts to an employer match of $1,925 per year.
That may not sound like much. But if you're earning a modest 8% average annual return on your investments (which is just below the stock market's historic average), here's approximately how much it could add up to over time:
| Number of Years | Total Savings |
|---|---|
| 20 | $88,000 |
| 25 | $140,000 |
| 30 | $218,000 |
| 35 | $331,000 |
| 40 | $497,000 |
Data source: Author's calculations via Investor.gov.
Keep in mind, too, that these calculations are only accounting for the employer match. Once you figure in your own savings, you'll have at least double these amounts.
What if you can't afford to save right now?
Money is tight for many people, and saving hundreds of dollars per month for retirement is daunting. But every little bit counts, especially if you have access to a 401(k) with matching contributions.
The employer match is essentially free money, and if you're not saving anything in your 401(k), you're leaving that money on the table. Even if you only have a few dollars per week to contribute, it can add up to more than you may think when those savings are instantly doubled.
That said, there is one scenario where you may be better off not investing. If you don't have an emergency fund, it may be wise to put your extra cash toward that goal before you contribute to your retirement fund.
A healthy emergency fund should have enough savings to cover at least three to six months' worth of general living expenses. When you have a strong safety net in place, you can avoid tapping your retirement savings if you face an unexpected expense -- which could save you hundreds or even thousands of dollars in taxes and penalty fees.
Employer matching contributions can be a game changer when it comes to saving for retirement, so if you have access to them, it's wise to take full advantage of this perk. Over time, that employer match could add up to hundreds of thousands of dollars.
